London - Commodity-linked currencies like the Australian and Canadian dollars pulled back from recent peaks on Wednesday as a rally in crude oil prices stalled after oil workers in Kuwait halted a three-day strike.
With Shanghai leading a retreat for stock markets, investors retreated to the traditional security of the yen, pushing it almost half a percent higher against the euro and the dollar.
Read: Oil down in Asian trade
The euro was holding broadly steady at $1.1361, with options markets showing speculative activity ahead of Thursday's European Central Bank meeting was far more subdued than the run-in to recent policy decisions.
“The ECB are going to do nothing tomorrow. (ECB chief Mario) Draghi might try to play up how big their package of easing was a month ago, but I don't think he's really going to rattle the currency,” said Richard Benson, head of portfolio investment at currency managers Millennium Global.
“The euro can move a couple of percent lower before the end of the month but that will just be the result of a repricing of US money markets.”
The US Federal Reserve's caution over raising interest rates, coupled with ultra-loose monetary policies in Japan and Europe, have driven US market rates lower in the past month, broadly weakening the greenback.
With stock and commodity markets in general in a more optimistic mood at the start of the year, that has boosted the appeal of currencies like the Aussie which carry much higher interest rates.
The 2 percent fall in oil prices on Wednesday, however, was enough to knock the Australian currency back by a third of percent to $0.7788. The Canadian dollar fell to C$1.2710 after strengthening as far as C$1.2630 per US dollar overnight. The New Zealand dollar fell 0.7 percent to $0.7002.
Sterling, another currency that tends to be closely correlated with oil prices, fell back from 3-week highs above $1.44 touched on Tuesday after a pair of polls soothed nerves over whether Britain will vote in June to leave the European Union.
UK jobs data is the main data set-piece in Europe on Wednesday, with wage growth still glued to levels that stop short of the sort of inflationary pressure needed to force the Bank of England to raise interest rates.
Analysts from BNP Paribas said they expected earnings growth to have slowed in annual terms.
“Our position metrics continue to indicate that GBP short positioning is stretched, but with political concerns dominating price action and data somewhat mixed, sterling recovery trades will likely require a degree of patience,” they said.
REUTERS